Chinese independent refiners, the so-called ‘teapots’, are expected to import less crude at least until August, as high inventories, changing import quota policies, and stricter tax scrutiny are squeezing their refining margins—a move that could raise concerns over China’s oil demand growth.
Some independent refiners are pausing for maintenance, while others are cutting run rates because of squeezed margins, Reuters reported on Friday, citing managers at teapots.
“There will be more shutdowns in June, July and possibly August. It’s seasonal but also because the market is not doing well and stocks are plentiful,” a manager at a Dongying-based independent refiner told Reuters.
Following record high import volumes in March, China’s total imports in April retreated from previous month highs amid seasonal maintenance.
Since independent refiners were allowed in late 2015 to import crude oil, they had enjoyed plenty of profits and competed with the giant state-run refiners.
But earlier this year, China banned exports of fuel by the independent refiners. The teapots have lobbied with the government to lift that fuel export ban, which had cut a major source of income.
China also said it would stop accepting applications by refiners to import crude oil beginning May 5. It also began stricter checks on the teapots’ tax practices.
Some of the independent refiners had hastened to buy crude oil in the first quarter this year for fear of penalties for slow use of their import permits, another teapot manager told Reuters.
“There were some over-purchases of crude earlier as [plants] were unsure of the quota policy. Now inventories are high everywhere,” he noted.
In the province of Shandong, where many independent refiners are based, crude stocks at major ports were at a 13-month high because of maintenance at independent refineries and high import volumes in the previous months, S&P Global Platts reported last week, quoting port sources.
By Tsvetana Paraskova for Oilprice.com